Battle For Iranian Oil Industry Takes Shape, As Some Europeans Pull Out While Others Move In

Just as French oil major Total announced it was likely to pull out of Iran, a UK-based consortium has signed a deal which could pave the way for a ten-year commitment to the country. The contrasting decisions highlight how, in the wake of President Donald Trump’s decision to pull the US out of the Iran nuclear deal, a battle is underway to decide whether Iran’s oil industry will slink back into isolation or whether it will remain integrated into international markets.

A heads of agreement (HoA) was signed in Tehran on May 16 between the UK-based Pergas International Consortium and the National Iranian South Oil Company (NISOC). Among those in attendance to witness the deal being signed were Iran’s petroleum minister Bijan Zangeneh and the British ambassador to Tehran Robert Macaire, according to the local Shana news agency.

The deal covers the Keranj oilfield, a brownfield site 110km from Ahvaz in Khuzestan province, close to the Iraqi border. If the HoA is followed by a firm contract being signed, it could take output at the field from its current level of around 120,000 barrels a day (b/d) to 200,000 b/d, using gas injection.

A woman walks past a poster of an offshore rig at the International Oil, Gas, Refining & Petrochemical Exhibition in Tehran, Iran on May 6, 2018. (Photo: Fatemeh Bahrami/Anadolu Agency/Getty Images)

The Keranj oifield was discovered in 1962 and is estimated to hold some 11 billion barrels of oil. The plan outlined by NISOC and Pergas is to reach total production of 655 million barrels over a ten-year period.

The deal envisages investment of some $354m, making it a relatively modest development in the overall Iranian market. Industry analysts GlobalData recently estimated that some $21bn of capital investment would be made in the Iranian oil and gas market between now and 2021.

Nonetheless it is a sign of how European governments are determined to do what they can to ensure the nuclear deal – formally known as the Joint Comprehensive Plan of Action (JCPOA) – remains in place. Speaking after the signing of the HoA, Macaire said “We are strongly committed to the JCPOA and are seeking solutions to guarantee the agreement’s benefits for Iran.”

Iran is also keen to ensure it retains access to international investment and expertise and will still be able to sell its oil to foreign buyers. “We will make every effort to maintain our production capacity and continue our exports,” said Zangeneh at the signing ceremony.

Pergas is made up of a cluster of 13 companies which together act as an exploration and development company, targeting the Middle East. Its members come from Asia, Australia, Europe and North America.

The decision by the consortium to push ahead on the Keranj field is in contrast to French oil major Total, which has said it may have to abandon its project to develop Phase 11 of the South Pars field unless it receives assurances from the US.

In a statement issued on May 16, Total said that, as a consequence of the Trump administration’s decision to take the US out of the JCPOA, it “will have to unwind all related operations before 4 November 2018 unless Total is granted a specific project waiver by the US authorities... This project waiver should include protection of the company from any secondary sanction as per US legislation.”

The comments made to date by US officials suggest Washington is not minded to offer any such waivers to European companies.

If Total does pull out, China National Petroleum Corporation is expected to step in to take its place. Zangeneh said on Wednesday that Total will not be fined if it withdraws, but any investments it has made to date will not be repaid until the project is fully implemented. Total says it has spent less than €40m ($47m) to date on the project and that withdrawing from Phase 11 will not impact its overall production growth targets.

It remains to be seen if other international oil companies will take their cue from Pergas or Total. The foreign ministers of France, Germany and the UK held talks with their Iranian counterpart Mohammed Javad Zarif in Brussels on May 15 in an effort to try and keep the JCPOA alive. According to press reports in Europe and Iran, the EU’s energy commissioner Miguel Arias Canete is due in Tehran on May 19 for talks on how the EU and Iran might cooperate on energy issues in the future.

Dominic Dudley is a freelance journalist with almost two decades' experience in reporting on business, economic and political stories in the Middle East, Africa, Asia and Europe.